The dynamics of earnings management in IPOs and the role of venture capital

Antonio Gledson de Carvalho, Roberto Pinheiro and Joelson Sampaio ()

Research in International Business and Finance, 2020, vol. 51, issue C

Abstract: We investigate the dynamics of earnings management (EM) in IPOs and the role of venture capitalist (VC) in hampering such practice. We study the behavior of EM in four phases: Pre-IPO, IPO, Lock-up and Post-lock-up. We find that VC-sponsored firms tend to do more EM in the Pre-IPO period, and less in two subsequent periods. These results are distinct for those of Wongsunwai (2013), for which, VC-sponsored firms do less EM only in the IPO period. We also find that VC and non-VC-sponsored firms do EM around the IPO in distinct fashions. Non-VC-sponsored firms inflate earnings during the IPO period and deflate in the Lock-up and Post-lock-up periods. VC-sponsored firms inflate earnings in the Pre-IPO period and deflate earnings only in the Lock-up period. Our results are robust with respect to how one measures EM and the statistical methods used.

Keywords: Earnings management; IPO; Venture capital (search for similar items in EconPapers)
JEL-codes: G24 G30 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:51:y:2020:i:c:s0275531919300236

DOI: 10.1016/j.ribaf.2019.101084

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